Wednesday, October 13, 2010

The Yuan

At the recent International Monetary Fund (IMF) talks in Washington, the subject that dominated the talks is the Chinese currency. Developed countries like the United States, Europe and Japan complained bitterly that Beijing's currency policies have led the Chinese yuan to be grossly undervalued.

China has dug in its heels, refusing to allow the yuan to rise. Fears of a currency war between the world's most powerful economies are over-rated because it is just not going to happen, but I feel governments in Asia need to lend their voice against China on their currency.

Simply put; it is in their interest that the yuan be allowed to go up.

Due to the current level of the yuan, governments from Japan, South Korea, India, Thailand, the Philippines, all had to intervene in the market to stem a rise in their own currency. The yuan is just too low. No one, including the Chinese, argued on this point. When they defend the level of the yuan, the Chinese don’t argue on the economics but on the social aspect of the currency.

The Chinese government say the Chinese people will lose jobs if the currency rises, but that is just a wrong argument because the low yuan is taking away jobs from other countries where the level of their currencies match their countries’ wealth (or lack of). China has now the second biggest economy in the world, but they are arguing that their currency should be at the level of a third-world country!

That is just crazy and Asian governments need to lend their voice to the West on this. After all, the West is not the only one suffering from the yuan.